P&G Rethinks Emerging Markets Strategy

Apparently, it's no so easy to touch more people's lives in more parts of the world more completely. That's been Bob McDonald's mantra since taking the helm at P&G in 2009. But new realities have the company focused on Old World markets and the US.

P&G said today it would stop spending money on further expansion in emerging markets until it stabilizes its largest and most profitable businesses, putting on hold a key priority of Chief Executive Bob McDonald.

During his tenure, McDonald has steered the company aggressively into new corners of the globe in order to boost the number of customers under P&G's reach. But the limits of that strategy were evident last month when the company reported a drop in earnings and falling market share for the first three months of the year.

Chief Financial Officer Jon Moeller, addressing Wall Street analysts and investors Wednesday, said the consumer-products giant may have been overzealous in chasing growth overseas. He laid out a strategy to prioritize spending in its coming fiscal year around its 40 largest business lines, mainly in North America and China. The product lines, which include business like razor blades, laundry and diapers in North America, make up about 50% of P&G's sales.

"We will not spend a dollar outside these core businesses until we are broadly sufficient to win in these markets," Moeller said. "We may have overextended ourselves a bit with our pace of expansions."

McDonald has waged a worldwide battle for market share since taking the top job in July 2009. But investors have expressed concern that P&G isn't doing as good a job as its rivals maintaining margins and sales growth.

Those concerns boiled over in late April, when analysts openly criticized the CEO on a conference call following P&G's earnings report. "How much patience," asked Sanford C. Bernstein analyst Ali Dibadj, "does the board have?"

Analysts made a number of such comments after P&G lowered its profit outlook and said it would roll back recent attempts to raise prices in key markets. Those price increases hurt its share of markets such as powdered laundry detergent in the U.S. as well as oral care, automatic dishwashing detergent, and blades and razors in North America.

On Wednesday, P&G said it is looking at whether it needs to lower prices in other areas. "We will not lose share because prices are too high," MrMoeller said. "We're closely monitoring a few additional situations and adjust as necessary."

For generations, P&G focused on boosting U.S. and European sales with new products and all but forfeited many developing markets to its competitors, pushing only selectively into places including China and Eastern Europe. But McDonald decided that the company could no longer cede territory to rivals. As recently as late April, in a media call before the earnings call with analysts, McDonald was still talking about new frontiers, speaking about Africa as the new Asia.

P&G's sales are growing much faster in emerging markets, but those sales are generally less profitable than those in developed markets due to consumers' greater price sensitivity and high level of competition. Mr. Moeller said once P&G determines its core businesses are in a position to grow, it will turn toward investing in the rest of the portfolio, starting with 10 emerging markets that have the most promise.

P&G still expects either high-single or low double-digit growth from its emerging markets businesses, offsetting weakness in developed markets. P&G shares were down 1.4% in recent trading at $62.30.